Due diligence: How to vet companies and investors

In the private markets where data is harder to come by, proper due diligence can make all the difference. Though due diligence largely involves examining financials and legal specifics, it also includes validating potential targets or confirming that an investor is a good fit before reaching out or pursuing a deal. With the right information, it’s possible to identify any issues with a target or investor early—saving time and money. Ultimately, more sophisticated due diligence tools—and more data—enable professionals to better vet companies and investors.

How to vet a company

With so many opportunities out there, it’s important to focus on the most promising investment targets. Looking at revenue figures, cap table, financing history and similar companies can surface important insights regarding available equity and potential value. Beyond company data, it can be equally important to get a sense of an executive team’s track record to ensure that they have the right experience to grow a business. This kind of insight can help determine which opportunities to pursue and who to work with based on the big picture—not just a snapshot.

What questions should investors consider as they evaluate investments?

• What does the company’s financial performance and condition look like?
• Do you have insight into the executive team’s past performance? 
• Are there any unique challenges in the company’s industry or vertical?
• What does the competition look like?

How to vet investors

With a better understanding of an investor’s past performance, you can better judge its likelihood for future success. A traditional benchmark can provide a general sense of fund performance. A better approach to benchmarking would compare funds based on strategy and portfolio construction to provide insight into the true value of a financial sponsor. Looking at the performance of a firm’s investments, the deals specific fund managers have led, the co-investors they’ve partnered with and the institutional investors they’ve raised money from can shed more light on an investor’s experience and track record. 

What questions should companies consider as they evaluate investors?

• What does the firm’s fund performance look like?
• How does the firm compare to its competitors?
• Have I done enough fund manager due diligence?
• What deals has the fund manager led?
• What firms have they co-invested with?

The right tool for due diligence

PitchBook’s detailed data on companies and investors enables its users to better evaluate potential investments and funds. With access to information on past investments, fund performance and fund manager experience, users can identify the right investors to work with. In addition, PitchBook offers custom benchmarking, where users can choose a peer group based on portfolio construction and industry focus. Similarly, PitchBook’s comprehensive company data helps investors find targets that best match their investment criteria. Because PitchBook provides insight into financing histories, series terms, cap tables and revenue figures, our users have the information necessary to move forward with confidence.